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Montana power co-op trustee fights $46M claim

Matthew Brown, Associated Press

BILLINGS, Mont. (AP) -- The trustee for a bankrupt Montana power cooperative is challenging in federal court a claim for $46 million from banks that financed a little-used natural gas power plant near Great Falls.

The outcome could affect electricity rates for thousands of customers in central and southern Montana served by members of Southern Montana Electric Generation and Transmission Cooperative.

U.S. Bank National Association is seeking the $46 million as a "make-whole payment" to cover lost proceeds on a loan Southern Montana used to build the Highwood Generating Station. That's on top of the loan itself — $85 million.

Southern Montana trustee Lee Freeman says in court papers filed Friday that the make-whole request is exorbitant and should be rejected. An attorney for U.S. Bank National Association did not respond to requests from The Associated Press for comment.

Southern Montana trustee attorney John Parks said the loan itself is not in dispute and still would be repaid under a proposed reorganization plan for the cooperative.

The Highwood plant has seen minimal use, helping drive Southern Montana into bankruptcy after the cooperative also contracted with PPL Montana for more power than it needed at high rates.

Southern Montana is composed of five rural cooperatives and the city of Great Falls. It filed for bankruptcy in 2011.

Separately, attorneys in the case say the co-op's lenders could be owed tens of millions of dollars more depending on the value affixed to the power plant and Southern Montana's contracts as part of its federal bankruptcy case.

Freeman said in court documents that the plant is now worth only $5.6 million. And he says the power contracts with its members are worth nothing, since Southern Montana cannot profit off its members and anyone who bought those contracts wouldn't be able to profit, either.

If U.S. Bankruptcy Judge Ralph Kirscher accepts those values, the cooperative would avoid interest charges, attorney fees and other costs that could add up to as much as $100 million, said Parks.

But if those charges and costs are included, Parks said Southern Montana's members would be on the hook to repay the amounts in coming years.

"The only source of debt payments are the members themselves," Parks said Friday.

The bankruptcy already has seen one of Southern Montana's members, Yellowstone Valley Electric Cooperative, break away under a proposed settlement.

Lawsuits from two other members that want out of Southern Montana — the City of Great Falls and Beartooth Electric Cooperative — are pending as part of the bankruptcy case.

A hearing on the make-whole payments and the value of Southern Montana's assets is scheduled for July 29 in Missoula before Kirscher.

Disputes over the asset values and other issues could drag out the case for months, possibly into 2014, according to Doug James, an attorney representing Great Falls in the case.

James said the outcome could saddle the city's electricity customers with high rates even though the city did not participate in the decision to build Highwood.

"This is a tragic case and it will be detrimental for consumers and for the Montana economy in that Southern members are going to have to pay for energy costs that potentially will be above market rates," he said.